Price Discovery in Indian Gold Market


Published: 2021-03-09

Page: 74-89

Abhishek Halder *

Indian Institute of Management Ahmedabad, India

Himanshu Sharma

Fixed Income Analyst, Bank of America, India.

*Author to whom correspondence should be addressed.


Market volatility and collapse of world’s currencies have led investors and public in general to look for alternate assets like gold which has been identified as a good hedge against inflation whilst also holding sentimental value in the Indian context. Gold futures market is highly liquid and traded across different exchanges. This study is conducted to see if efficient market hypothesis allows for price discovery of gold spot prices from gold futures and volume traded in market using monthly data from 2009-2019. Results show that the lagged volumes of traded gold stocks do not affect the futures or spot prices of gold. Rather, the lagged futures prices cause change in spot prices of domestic gold prices. It is also found that troughs of international gold prices does not necessarily coincidence with slump in domestic gold prices which remains resilient due to domestic market sentiments. To conclude, this paper will help policymakers to design specialized gold products and make suitable future policy changes in the Indian domestic market.

Keywords: Gold futures, spot prices, price discovery, efficient market.

How to Cite

Halder, A., & Sharma, H. (2021). Price Discovery in Indian Gold Market. Asian Journal of Economics, Finance and Management, 3(1), 74–89. Retrieved from


Download data is not yet available.


Cox CC. Futures trading and market information. Journal of Political Economy. 1976;84:1215-1237.


Figlewski S. Futures trading and volatility in the GNMA market. Journal of Finance. 1981;36:445-456.


Clifton EV. The currency futures market and interbank foreign exchange trading. The Journal of Futures Markets. 1985;5:375–384.


Grammatikos T, Saunders A. Futures price variability: a test of maturity and volume effects. Journal of Business. 1986;59:319–330.


McCarthy J, Najand M. State space modeling of price and volume dependence: evidence from currency futures. The Journal of Futures Markets. 1993;13:335-344,


Chatrath A, Ramchander S, Song F. The role of futures trading activity in exchange rate volatility. The Journal of Futures Markets. 1996;16:561-584.

Danthine J. Information, futures prices, and stabilizing speculation. Journal of Economic Theory. 1978;17:79-98.


Kyle AS. Continuous auctions and insider trading. Econometrica. 1985;53:1315-1335.


Harris L. S&P 500 cash stock price volatilities, Journal of Finance. 1989;44:1155-1175.


Damodaran A. Index futures and stock market volatility. Review of Futures Markets. 1990;9:442-457.

Lockwood LL, Linn SC. An examination of stock market return volatility during overnight and intraday periods 1964–1989. Journal of Finance. 1990;45:591-601.


Chang EC, Cheng JW, Pinegar JM. Does future trading increase stock market volatility? The case of the Nikkei stock index futures markets. Journal of Banking and Finance. 1999;23:727–753.


Kyriacou K, Sarno L. The temporal relationship between derivatives trading and spot market volatility in the UK: Empirical analysis and Monte Carlo evidence. Journal of Futures Markets. 1999;19:245-270.

Moradoglu G, Taskin F, Bigan I. Causality between stock returns and macroeconomic variables in Emerging markets. Russian and East European Finance and Trade. 2001;36:33-53.

Ghosh DP, Levin EJ, Macmillan P, Wright RE. Gold as an inflation hedge? Studies in Economics and Finance. 2004;22(1):1-25.

Ali M. Kutan, Tansu Aksoy. Public information arrival and emerging markets returns and volatility. Multinational Finance Journal. 2004;8(3-4):227-245.

Albeni M, Demir Y. Makroekonomik Göstergelerin Mali Sektör Hisse Senedi Fiyatlarına Etkisi. Mugla Üniversitesi SBE Dergisi; 2005.

Forrest Capie, Terence C. Mills, Geoffrey Wood. Gold as a hedge against the dollar. International Financial Markets, Institution and Money. 2005;15:343–352.

Eric J. Levin, Robert E. Wright. Short run and lon run determinants of the price of gold. World Gold Council Research Study No. 32; 2006.

Gökdemir Levent, Ergün Suzan. Altın Fiyatlarındaki İstikrarsızlığın Altın Ticareti Üzerindeki Etkisi: Türkiye Örneği. Journal of Yasar University. 2007;2(5):461-476.

Demireli Erhan, Torun Erdost. Alternatif piyasa oynakliklarinda meydana gelen kirilmalarin ICSS Algoritmasıyla Belirlenmesi ve Süregenliğe Etkileri: Türkiye ve Londra Örneği. Muhasebe ve Finansman Dergisi. 2010;46:129-145.

Baur, Dirk G. Explanatory mining for gold: contrasting evidence from simple and multiple regressions, resources policy. 2011;36:265-275.

Mishkin, Frederic S. Appendix 2 to Chapter 5: Applying the Asset Market Approach to a Commodity Market. The Economics of Money, Banking and Financial Markets, Ninth Edition, USA: Prentice Hall; 2010.

Mishra PK, Das JR, Mishra SK. Gold price volatility and stock market returns in India. American Journal of Scientific Research. 2010;9:47-55.

Hubbard Glenn R - O’Brien, Anthony Patrick. Money, banking and the financial system. Pearson: USA. International Edition; 2012.

Malliaris AG, Malliaris Mary. Are oil, gold and the euro inter-related? Time Series and Neural Network Analysis. Review of Quantitative Finance and Accounting. 2011;1-14.

Le Thai-Ha, Chang Youngho. Oil and gold prices: correlation or causation? Economic Growth Centre Working Paper Series 1102, NTU, School of Social Sciences, Economic Growth Centre; 2011.

Yahyazadehfar M, Babaie A. Macroeconomic variables and stock price: new evidence from Iran. Middle East Journal of Scientific Research. 2012;11(4):408-415.

Kaliyamoorthy S, Parithi S. Relationship of gold market and stock market: An analysis. International Journal of Business Management Tomorrow. 2012;2(6):1-6.